Recurring Deposit

The Recurring deposit in Bank is meant for
someone who want to invest a specific sum of money on a monthly basis for a
fixed rate of return. At the end, you will get the principal sum as well as the
interest earned during that period. The scheme, a systematic way for long term
savings, is one of the best investment option for the low income groups.

FeaturesThe minimum investment of Recurring Deposit
varies from bank to bank but usually it begins from Rs 100/-. There is no upper
limit in investing. The rate of interest varies between 7 and 11 percent
depending on the maturity period and amount invested. The interest is
calculated quarterly or as specified by the bank. The period of maturity
ranging from 6 months to 10 years.

The deposit shall be paid as monthly
installments and each subsequent monthly installment shall be made before the
end of the calendar month and shall be equal to the first deposit. In case of
default in payment, a default fee is chargeable for delayed deposit at the rate
of Rs. 1.50/- for every Rs. 100/- per month for deposits up to 5 years and Rs.
2/- per Rs. 100/- in case of longer maturities.

Since a recurring deposit offers
a fixed rate of return, it cannot guard against inflation if it is more than
the rate of return offered by the bank. Worse, lower the gap between the
interest rate on a recurring deposit and inflation, lower your real rate of
return. Premature withdrawal is also possible but it demands a loss of
interest.

Returns
The rate of interest varies between 7 and 11 percent depending on the
maturity period and amount invested. The interest is calculated quarterly or as
specified by the bank.

Amount
invested per month

Maturity
amount in 2 years (5%interest)

Rs
100

Rs
2626

Rs
500

Rs
13,132

Rs
750

Rs
19,698

Rs
3000

Rs
78,792

Advantages Some Nationalised banks are giving more
facilities to their customer, State Bank of India give Free Roaming Recurring
Deposit facility to their customers. They can transfer their account to
any branch of SBI free. Tax benefit on the interest earned on Recurring Deposit
up to Rs 12000 Tax Deductible at source if the interest paid on deposit exceeds
Rs 5000/-per customer, per year, per branch.

How to open an AccountA Recurring Bank Deposit account can be opened
at any branch of a bank that offers this facility. However, some banks insist
that you maintain a savings bank account with them to operate a Recurring Bank
Deposit account. The terms and conditions vary from bank to bank. When a
depositor opens a Recurring Bank Deposit account with a bank, a pass-book or an
account statement is issued to him.